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US threatens Europe with “gas war”

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Russia’s Foreign Minister Sergei Lavrov has said that the Nord Stream 2 gas pipeline will be launched irrespective of the US sanctions. Envisaged by the draft US defense budget for the 2020 fiscal year, the restrictions have already run into an adverse reaction in Europe and could further aggravate Washington’s relations with major European capitals, first of all, with Berlin.

The sanctions in question, which were imposed on the Nord Stream-2 and Turkish Stream gas pipelines, speak of the Congress’s desire to “do everything” to destroy relations with Russia. Nevertheless, both projects will go ahead, – Sergey Lavrov said following his visit to Washington on December 10th.

In the run-up to the Russian-American negotiations, the US Senate Committee on Armed Forces published a draft defense budget for 2020, which imposes sanctions on Russian energy projects. The draft says the restrictions on the Nord Stream 2 and Turkish Stream projects are introduced, no more, no less, to ensure Europe’s energy security.

According to the authors of the bill, the decision to include sanctions on the Nord Stream-2 project in the military budget was taken because there is no time now to elaborate a separate law regarding these restrictions. The idea is that sanctions should be introduced as early as possible in order to thwart the completion of the gas pipeline. Jim Rish, Chairman of the Senate Foreign Relations Committee, points out that the restrictions will be applied against companies that supply vessels for laying pipes at a depth of 100 feet (about 30.5 m) below sea level.

The measures, which were approved by the House of Representatives on December 11, may directly affect foreign partners of Nord Stream 2 AG, a project operator Nord Stream 2, which comprise French Engie, Austrian OMV, British-Dutch Royal Dutch Shell, German Uniper and Wintershall, as well as a number of European contractors. The developers of the bill did their best: it could shut companies out of access to any operations in the United States or any work for American business around the world, including American credit resources. As for physical persons, employees of these companies may lose the opportunity to obtain an American visa; also, any transactions related to their property or interests in the United States will be blocked. Under available information, the initiators of the bill also intend to strike at three major companies involved in laying underwater pipelines and firmly integrated into the global market. These are the German “Uniper”, the Swiss “Allseas” and the Italian Saipem.

The campaign to introduce US sanctions against partners of the Russian PJSC Gazprom was initiated by Republican Senator Ted Cruz, who in May this year submitted a separate bill to the Senate on sanctions against foreign operators of pipe-laying vessels of the Nord Stream-2 gas pipeline. In July the Senate committee which deals with such issues voted in favor of the document. The Ted Cruise bill with the final amendments has become part of the draft defense budget. The Senator assured all parties concerned that “the Congress will approve, and the president will sign the target sanctions that will punish companies involved in the construction of the gas pipeline.”  The Congressmen expect to adopt a defense budget before the Congress adjourns on December 20, 2019.

Commenting on the above mentioned document, Russian Foreign Minister Sergey Lavrov said that “the Congress is overwhelmed with the desire to do everything in its power to destroy our relations.”

However, at the last moment, Congressmen apparently tried to soften the earlier proposed sanctions. As follows from a conciliation report by members of the Senate and House of Representatives Committees on Armed Forces, the final version of the Ted Cruise bill contained yet more exceptions compared to the one passed by the related Senate Committee in July.

Approved after a three-month discussion, the bill envisages measures against foreign companies that supply vessels for the construction of the Nord Stream-2 and Turkish Stream pipelines but exempts companies that provide insurance and reinsurance services for such ships. Sanctions will not affect companies that guarantee the repair or maintenance of both pipelines.

Within 30 days of the entry into force of the bill the company can wrap up its work to provide operators of the Nord Stream-2 and Turkish Stream projects with pipe-laying vessels without facing sanctions. The Congress has also halved the maximum term of sanctions regime from ten to five years.

The President of the United States enjoys the right to make an exception and not to impose sanctions against a company that supplies ships for Gazprom projects, if this chimes in with the “US national security interests”.

In addition, the final version of the bill does not include potentially much more austere sanctions against the new Russian state debt.

In this respect, The Wall Street Journal reasonably argues that “sanctions directed against pipe-laying companies may trigger yet greater tensions between the US and Germany, which strongly opposes new sanctions.”

According to the newspaper, the Russian Gazprom and the government of German Federal Chancellor Angela Merkel “have long been prepared for the possibility of US sanctions, as reported by German officials and representatives of the Russian energy giant.” The Wall Street Journal quotes a top German official who spoke on condition of anonymity as saying that “the construction of the pipeline is coming to a close and that this project will be completed, despite the sanctions.” According to a German government representative, the Merkel Cabinet “rejects extraterritorial sanctions that affect German and European companies,” – the American edition says.

In Germany proper, many politicians have taken yet a tougher stance against US sanctions on Europeans. The fact that the German government submitted to the “economic attack” and “surrendered” to the United States over the construction of the Nord Stream 2 pipeline was voiced by Steffen Kotre, Speaker of the Alternative for Germany faction on energy issues in the Bundestag. According to Kotre, “the USA managed to link Nord Stream-2 with Ukraine, which it destabilized earlier.” The government of Angela Merkel is just unable to represent and defend the position of Germany at the moment, while the stability of Ukraine “has nothing to do with other economic projects,” – Steffen Kotre says.

A similar opinion came from Chairman of the Parliamentary Commission on Economics and Energy Klaus Ernst,who said Ukraine’s support for US sanctions undermines Germany’s energy policy and calls into question further assistance from the European Union. Kiev has received and continues to receive “substantial political and financial support from the European Union,” and at the same time, it supports US sanctions that undermine “our energy policy,” – Klaus Ernst said.

The German parliamentarian emphasized that if Washington imposes sanctions on the Nord Stream 2 gas pipeline, Berlin may respond with retaliatory measures, such as increase duties on American liquefied natural gas.

Europe should take retaliatory measures in response to US sanctions against the Nord Stream 2 gas pipeline which are enshrined in the draft defense budget for the 2020 fiscal year, the German-Russian Chamber of Commerce said in a statement. The document emphasizes that this organization condemns extraterritorial sanctions against the pipeline construction project. According to OMV CEO Rainer Seele, “sanctions against the Nord Stream 2 project are a blow to Europe and Germany, a close ally.” Rainer Seele is convinced that Berlin and Brussels need to assume a clear political position and “respond with target measures,” since energy independence of European countries depends on it.

New US sanctions against the Russian Nord Stream 2 gas pipeline will hit EU sovereignty, – predicts Oliver Hermes, chairman of the East German Economy Committee: “If these sanctions come into force, it will be a direct blow to European Union sovereignty and a fatal signal for Paris’ peace efforts. ” The expert said that the participants in the “Normandy Four” summit in Paris on December 9 took new steps to achieve a settlement in Donbass “after years of idleness”. Considering this, American sanctions will constitute a threat to a “new, bold” approach to the situation in eastern Ukraine. Oliver Hermes made it clear that if the US imposes restrictions on Russia, energy prices for European consumers will gradually go up; in addition, sanctions n will “undermine transatlantic unity” and inflict damage on US projects in Europe.

“We must respond with countermeasures to the sanctions, which are detrimental to Europe,” – the head of the German-Russian Chamber of Commerce Matthias Shepp reaffirms: “It’s time for Berlin and Brussels to take a clear political position and respond with target countermeasures,” as the energy-political security of Europe is at stake. According to Matthias Shepp, Nord Stream 2 enhances Europe’s energy security by guaranteeing low energy prices in comparison with more expensive American liquefied natural gas. “The US wants to boost the supply of its liquefied gas to Europe with the help of sanctions. Meanwhile, Germany needs low energy prices for its energy-intensive industry to survive amid global competition,” – the head of the German-Russian Chamber of Commerce emphasizes.

Meanwhile, Ukraine hopes that the measures proposed by the American Congressmen will disrupt the implementation of the Nord Stream 2 project. However, Ukrainian experts recognize that “it will be difficult to push a number of major investors out of the project. Many have nothing to lose. Some feel the strong support of European governments, above all, German businesses. Given the circumstances, there is a chance that the construction will continue and will likely be completed, though with a considerable delay. ”

Given the situation, a lot will depend on the position of Germany and France as key EU players and major participants in the “Normandy process.” From both economic and political points of view, Berlin and Paris will lose a lot if they choose not to cooperate with Russia and block the implementation of the Nord Stream 2 project. In addition, the convincing victory of Brexit supporters in the UK’s early parliamentary elections on December 12 weakens the positions of the “Euro-Atlanticists” in Europe and those oriented at Washington. What also remains important is the deadline for completing the construction of the pipeline, since both the finalization of the pipeline project and the imposition of sanctions is a matter of just a few months.

From our partner International Affairs

Peter Iskenderov, senior research assistant at RAS Slavic Studies Institute, candidate of historical sciences

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Energy

Indonesian Coal Roadmap: Optimizing Utilization amid Global Tendency to Phasing Out

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Authors: Razin Abdullah and Luky Yusgiantoro*

Indonesia is potentially losing state revenue of around USD 1.64-2.5 billion per year from the coal tax and non-tax revenues. Although currently Indonesia has abundant coal resources, especially thermal coal, the coal market is gradually shrinking. This shrinking market will negatively impact Indonesia’s economy. The revenue can be used for developing the country, such as for the provision of public infrastructures, improving public education and health services and many more.

One of the main causes of the shrinking coal market is the global tendency to shift to renewable energy (RE). Therefore, a roadmap is urgently needed by Indonesia as a guideline for optimizing the coal management so that it can be continuously utilized and not become neglected natural resources. The Indonesian Coal Roadmap should also offer detailed guidance on utilizing coal for the short-term, medium-term and long-term.

Why is the roadmap needed?

Indonesia’s total coal reserves is around 37.6 billion tons. If there are no additional reserves and the assumed production rate is 600 million tons/year, then coal production can continue for another 62 years. Even though Indonesia’s coal production was enormous, most of it was for export. In 2019, the export reached 454.5 million tons or almost 74% of the total production. Therefore, it shows a strong dependency of the Indonesian coal market on exports, with China and India as the main destinations. The strong dependency and the global trend towards clean energy made the threat of Indonesian coal abandonment increasingly real.

China, one of Indonesia’s main coal export destinations, has massive coal reserves and was the world’s largest coal producer. In addition, China also has the ambition to become a carbon-free country by 2060, following the European Union countries, which are targeting to achieve it in 2050. It means China and European Union countries would not produce more carbon dioxide than they captured by 2060 and 2050, respectively. Furthermore, India and China have the biggest and second-biggest solar park in the world. India leads with the 2.245GW Bhadla solar park, while China’s Qinghai solar park has a capacity of 2.2GW. Those two solar parks are almost four times larger than the U.S.’ biggest solar farm with a capacity of 579 MW. The above factors raise concerns that China and India, as the main export destinations for Indonesian coal, will reduce their coal imports in the next few years.

The indications of a global trend towards RE can be seen from the energy consumption trend in the U.S. In 2019, U.S. RE consumption exceeded coal for the first time in over 130 years. During 2008-2019, there has been a significant decrease in U.S coal consumption, down by around 49%. Therefore, without proper coal management planning and demand from abroad continues to decline, Indonesia will lose a large amount of state revenue. The value of the remaining coal resources will also drop drastically.

Besides the global market, the domestic use of coal is mostly intended for electricity generation. With the aggressive development of RE power plant technology, the generation prices are getting cheaper.  Sooner or later, the RE power plant will replace the conventional coal power plant. Therefore, it is necessary to emphasize efforts to diversify coal products by promoting the downstream coal industries in the future Indonesian Coal Roadmap.

What should be included: the short-term plan

In designing the Indonesian Coal Roadmap, a special attention should be paid to planning the diversification of export destinations and the diversification of coal derivative products. In the short term, it is necessary to study the potential of other countries for the Indonesian coal market so that Indonesia is not only dependent on China and India. As for the medium and long term, it is necessary to plan the downstream coal industry development and map the future market potential.

For the short-term plan, the Asian market is still attractive for Indonesian coal. China and India are expected to continue to use a massive amount of coal. Vietnam is also another promising prospective destination. Vietnam is projected to increase its use of coal amidst the growing industrial sector. In this plan, the Indonesian government plays an essential role in building political relations with these countries so that Indonesian coal can be prioritized.

What should be included: the medium and long-term plans

For the medium and long-term plans, it is necessary to integrate the coal supply chain, the mining site and potential demand location for coal. Therefore, the coal logistics chain becomes more optimal and efficient, according to the mining site location, type of coal, and transportation mode to the end-user. Mapping is needed both for conventional coal utilization and downstream activities.

Particularly for the downstream activities, the roadmap needs to include a map of the low-rank coal (LRC) potentials in Indonesia, which can be used for coal gasification and liquefaction. Coal gasification can produce methanol, dimethyl ether (a substitute for LPG) and, indirectly, produce synthetic oil. Meanwhile, the main product of coal liquefaction is synthetic oil, which can substitute conventional oil fuels. By promoting the downstream coal activities, the government can increase coal’s added value, get a multiplier effect, and reduce petroleum products imports.

The Indonesian Coal Roadmap also needs to consider related existing and planned regulations so that it does not cause conflicts in the future. In designing the roadmap, the government needs to involve relevant stakeholders, such as business entities, local governments and related associations.

The roadmap is expected not only to regulate coal business aspects but also to consider environmental aspects. The abandoned mine lands can be used for installing a solar farm, providing clean energy for the country. Meanwhile, the coal power plant is encouraged to use clean coal technology (CCT). CCT includes carbon capture storage (CCS), ultra-supercritical, and advanced ultra-supercritical technologies, reducing emissions from the coal power plant.

*Luky Yusgiantoro, Ph.D. A governing board member of The Purnomo Yusgiantoro Center (PYC).

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Engaging the ‘Climate’ Generation in Global Energy Transition

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photo: IRENA

Renewable energy is at the heart of global efforts to secure a sustainable future. Partnering with young people to amplify calls for the global energy transition is an essential part of this endeavour, as they represent a major driver of development, social change, economic growth, innovation and environmental protection. In recent years, young people have become increasingly involved in shaping the sustainable development discourse, and have a key role to play in propelling climate change mitigation efforts within their respective communities.

Therefore, how might we best engage this new generation of climate champions to accentuate their role in the ongoing energy transition? In short, engagement begins with information and awareness. Young people must be exposed to the growing body of knowledge and perspectives on renewable energy technologies and be encouraged to engage in peer-to-peer exchanges on the subject via new platforms.

To this end, IRENA convened the first IRENA Youth Forum in Abu Dhabi in January 2020, bringing together young people from more than 35 countries to discuss their role in accelerating the global energy transformation. The Forum allowed participants to take part in a truly global conversation, exchanging views with each other as well as with renewable energy experts and representatives from governments around the world, the private sector and the international community.

Similarly, the IRENA Youth Talk webinar, organised in collaboration with the SDG 7 Youth Constituency of the UN Major Group for Children and Youth, presented the views of youth leaders, to identify how young people can further the promotion of renewables through entrepreneurship that accelerates the energy transition.

For example, Joachim Tamaro’s experience in Kenya was shared in the Youth Talk, illustrating how effective young entrepreneurs can be as agents of change in their communities. He is currently working on the East Africa Geo-Aquacultural Development Project – a venture that envisages the use of solar energy to power refrigeration in rural areas that rely on fishing for their livelihoods. The project will also use geothermal-based steam for hatchery, production, processing, storage, preparation and cooking processes.

It is time for governments, international organisations and other relevant stakeholders to engage with young people like Joachim and integrate their contributions into the broader plan to accelerate the energy transition, address climate change and achieve the UN Sustainable Development Agenda.

Business incubators, entrepreneurship accelerators and innovation programmes can empower young people to take their initiatives further. They can give young innovators and entrepreneurs opportunities to showcase and implement their ideas and contribute to their communities’ economic and sustainable development. At the same time, they also allow them to benefit from technical training, mentorship and financing opportunities.

Governments must also engage young people by reflecting their views and perspectives when developing policies that aim to secure a sustainable energy future, not least because it is the youth of today who will be the leaders of tomorrow.

IRENA

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The Urgency of Strategic Petroleum Reserve (SPR) for Indonesia’s Energy Security

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Authors:Akhmad Hanan and Dr. Luky Yusgiantoro*

Indonesia is located in the Pacific Ring of Fire, which has great potential for natural disasters. These disasters have caused damage to energy infrastructure and casualties. Natural disasters usually cut the energy supply chain in an area, causing a shortage of fuel supply and power outages.

Besides natural disasters, energy crisis events occur mainly due to the disruption of energy supplies. This is because of the disconnection of energy facilities and infrastructure by natural disasters, criminal and terrorist acts, escalation in regional politics, rising oil prices, and others. With strategic national energy reserves, particularly strategic petroleum reserves (SPR), Indonesia can survive the energy crisis if it has.

Until now, Indonesia does not have an SPR. Meanwhile, fuel stocks owned by business entities such as PT Pertamina (Persero) are only categorized as operational reserves. The existing fuel stock can only guarantee 20 days of continuity. Whereas in theory, a country has secured energy security if it has a guaranteed energy supply with affordable energy prices, easy access for the people, and environmentally friendly. With current conditions, Indonesia still does not have guaranteed energy security.

Indonesian Law mandates that to ensure national energy security, the government is obliged to provide national energy reserves. This reserve can be used at any time for conditions of crisis and national energy emergencies. It has been 13 years since the energy law was issued, Indonesia does not yet have an SPR.

Lessons from other countries

Many countries in the world have SPR, and its function is to store crude oil and or fuel oil. SPR is built by many developed countries, especially countries that are members of the International Energy Agency (IEA). The IEA was formed due to the disruption of oil supply in the 1970s. To avoid the same thing happening again, the IEA has made a strategic decision by obliging member countries to keep in the SPR for 90 days.

As one of the member countries, the US has the largest SPR in the world. Its storage capacity reaches a maximum of 714 million barrels (estimated to equal 115 days of imports) to mitigate the impact of disruption in the supply of petroleum products and implement US obligations under the international energy program. The US’ SPR is under the control of the US Department of Energy and is stored in large underground salt caves at four locations along the Gulf of Mexico coastline.

Besides the US, Japan also has the SPR. Japan’s SPR capacity is 527 million barrels (estimated to equal 141 days of imports). SPR Japan priority is used for disaster conditions. For example, in 2011, when the nuclear reactor leak occurred at the Fukushima nuclear power plant due to the Tsunami, Japan must find an energy alternative. Consequently, Japan must replace them with fossil fuel power plants, mainly gas and oil stored in SPR.

China, Thailand, and India also have their own SPR. China has an SPR capacity of 400-900 million barrels, Thailand 27.6 million barrels, and India 37.4 million barrels. Singapore does not have an SPR. However, Singapore has operational reserve in the form of fuel stock for up to 90 days which is longer than Indonesia.

Indonesia really needs SPR

The biggest obstacles of developing SPR in Indonesia are budget availability, location selection, and the absence of any derivative regulations from the law. Under the law, no agency has been appointed and responsible for building and managing SPR. Also, government technical regulations regarding the existence and management of SPR in Indonesia is important.

The required SPR capacity in Indonesia can be estimated by calculating the daily consumption from the previous year. For 2019, the national average daily consumption of fuel is 2.6 million kiloliters per day. With the estimation of 90 days of imports, Indonesia’s SPR capacity must at least be more than 100 million barrels to be used in emergencies situations.

For selecting SPR locations, priority can be given to areas that have safe geological structures. East Kalimantan is suitable to be studied as an SPR placement area. It is also geologically safe from disasters and is also located in the middle of Indonesia. East Kalimantan has the Balikpapan oil refinery with the capacity of 260,000 BPD for SPR stock. For SPR funding solution, can use the state budget with a long-term program and designation as a national strategic project.

Another short-term solution for SPR is to use or lease existing oil tankers around the world that are not being used. Should the development of SPR be approved by the government, then the international shipping companies may be able to contribute to its development.

China currently dominates oil tanker shipping in the world, Indonesia can work with China to lease and become Indonesia’s SPR. Actually, this is a good opportunity at the time of the COVID-19 pandemic because oil prices are falling. It would be great if Indonesia could charter some oil tankers and buy fuel to use as SPR. This solution was very interesting while the government prepared long-term planning for the SPR facility. In this way, Indonesia’s energy security will be more secure.

*Dr. Luky Yusgiantoro, governing board member of The Purnomo Yusgiantoro Center (PYC).

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